• Michael Schreiber

How a fee-only structure ensures that clients get our best

Updated: Jan 17


The investment advising landscape is filled with a variety of compensation models. Each financial advisory firm is different, and investors may encounter structures ranging from asset-under-management (AUM) percentages, commissions based on the sale of financial products, flat annual or hourly rates, or any combination of the above. For Aevitas and our clients, however, we’ve chosen a fee-only model because it fits best with our core values and what we believe to be in the best interest of our clients. I want to take a moment to explain why we chose this route, how it differs from other possibilities and what it means for you.

Types of advisory compensation: an overview

Compensation structures in the investment advising industry typically fall into one of three main categories: fee-only, commission-based and hybrid models that combine the two.

  1. Fee-only firms charge an advisor fee, completely independent of any financial products of investments purchased during the course of management. In some cases, the fee is hourly, while in others, the advisor might charge a retainer or an AUM percentage. Regardless, the compensation is not based on a specific financial product.

  2. Commission-based advisors earn their money differently. When their clients buy or use specific financial products or services (with whom the advisor likely has a standing arrangement), these professionals may get a bonus. The key here is that only certain types of financial products generate this kickback. This creates the potential for recommendations to be made that give preference to only the products that might generate a financial reward for the advisor or the firm he/she is associated with.

  3. Hybrid models represent a fusion of fee-only and commission-only. Under these types of structures, advisors receive some sort of consultation fee with the potential for additional earnings based on the sale of financial products. These can be complicated to navigate, as they often very closely resemble fee-only models on the surface.

Which model is the right choice for an individual investor comes down to more than one factor. No two situations are identical, and the most cost-effective option for one person may be the most expensive for the next. For Aevitas, however, I feel confident that a fee-only structure best suits our long-term partnership with clients for several reasons:

Transparency

This point forms the basis of all the others. It's crucial to me that clients feel confident that they understand the whole picture. Information can't be withheld at any point in the relationship between an advisor and an investor. To allow doubt to creep into the picture is to compromise the entire relationship, and at times a commission-based structure can bring doubts. Given that long-term engagements are the core of our business at Aevitas, we find that guaranteeing total transparency helps drive our success.

Simplicity

It's also important that clients feel connected to the service that we provide in a way that is unquestionably fair for all parties. Fee-only is the clearest way in our industry to ensure that you get what you pay for. When a straight management fee is the only money that changes hands there's no question about what, exactly, is being bought. You know you're paying only for advice given in good faith without anything self-serving influencing our recommendations.

Conflicts of interest and maintaining impartiality

When the actual trading of securities can be a source of income for an advisor, it creates the potential for a sticky ethical situation. An advisor working on commission may have a personal incentive to sell commission-generating securities, regardless of the benefit to their client. This has nothing to do with the moral character of the individual; most advisors would never intentionally hurt a client's interests for selfish reasons. It's just the nature of the system. Under a commission-based plan, there's always room for the interests of the broker to be different than that of the client.

The fee-only model that we've chosen to adopt at Aevitas eliminates that concern. Furthermore, as a registered investment advisor (RIA), we are a fiduciary with a legal obligation to look after clients' interests ahead of our own. This investor-first philosophy, in my mind, has been the single greatest driver of our success from the beginning. It's why we have such a strong track record of partnering with clients from generation to generation. Our fee-only model ensures that we'll preserve those long-term partnerships going forward with no questions about the value we can provide.

Shaping client relationships

Our founding vision was to be a long-term resource and partner for our clients. We recognize that every individual (and family) is different. Our clearest route to providing value is by treating each situation individually. If we were constantly looking to push individual products or drive short-term gains to hit our targets, we wouldn't be looking for the solutions that really make sense for each unique case. If I've learned anything over 29 years in financial advising, it's that success comes when our interests are aligned with those of our clients. That's the real reason Aevitas now uses a fee-only model.

If you're not already a client of ours and you or a friend, family member or colleague of yours is looking for a firm that operates under this set of principles, please don't hesitate to contact us here.

#WellesleyFinancialPlanning #FeeonlyAdvisor

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Tel: 781.239.1180

Aevitas Wealth Management, Inc.

10 Laurel Avenue

Suite 100

Wellesley Hills, MA 02481

Aevitas Wealth Management, Inc. is a registered investment advisor and offers advisory services.

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